TMI Blog2017 (5) TMI 1637X X X X Extracts X X X X X X X X Extracts X X X X ..... ricultural income to the extent it comprises of income from manufacture and sale of tea, which income is chargeable to tax - According to the AO Cess on green leaf was an expenditure which was attributable to the activity of growing of tea and would therefore be not allowable as deduction while computing income from manufacture and sale of tea - Held that:- The issue is concluded by the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs AFT Industries Ltd. [2004 (7) TMI 81 - CALCUTTA HIGH COURT] where the amount paid as cess was held as eligible for deduction in computing the composite income under Rule 8 of I.T. Rules. This issue is, therefore, decided in favour of the assessee upholding the order of the C.I.T.(A) who has allowed the deduction of payment of cess on green leaves in computing the composite income from tea business of the assessee under rule 8 of the I.T. Rules. Also confirmed by M/S APEEJAY TEA CO. LTD [2015 (8) TMI 1260 - SUPREME COURT] - Decided against revenue - I.T.A No. 2149/Kol/2014 - - - Dated:- 12-5-2017 - Sri N.V.Vasudevan And Shri M.Balaganesh, JJ. For the Appellant : None (DR)(Adj. request is rejected) For the Responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee entered into international transaction of giving of loans to its subsidiary AZO classic Russia. It is not in dispute that the transaction of giving loan to a subsidiary was an international taxation and the rate of interest that has to be charged by the assessee on such loan has to confirm to the arms length test laid down in section 92 of the Income Tax Act, 1961 (Act). It is not in dispute that the loan in question was given in foreign currency i.e., US$ and the rate of interest that was charged was at 4% p.a. which was increased to 8% on 02.04.2007. The basic details of the loan agreement were as follows :- Under an Agreement titled 'Credit Agreement No.2' dated 08 December, 2003, the assessee had advanced a loan of USD 800,000 to its subsidiary ZAO Classic in Russia. The principal amount was increased to 1,500,000 USD by an amendment dated 19,02.2004. the rate of interest charged on the loan was increased from 4% p.a. to 8% p.a. through an amendment dated 02.04.2007, i.e. during the financial year pertaining to assessment year 2008-09. The basic terms of this Agreement were as follows: Sl.No. Description Deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliance on the decision of Hon ble ITAT Chennai (2011) 46 SOT 2 (Chennai) (URO)/] 1 taxman. Com 404 (Siva Industries Holdings Limited vs. The Assistant Commissioner of Income Tax, Company Circle - VI (4), Chennai) wherein it was held that where loan is given to the associated enterprises in US dollars then the transaction would have to be looked upon the applying the commercial principles in regard to international transaction. If that was so, then the domestic prime lending rate would have no applicability and the international rate fixed being LIBOR rate had to be considered while determining the arm's length interest rate in respect of the transaction between the assessee and the associated enterprises. The assessee claimed that the facts of its case fairly and squarely match with that of the case decided by ITAT, Chennai and considering the interest rate of 8% charged on loan given to subsidiary Zao Classic, the provisions relating to arm's length transaction have no applicability. 7. The TPO was of the view that the rate of interest has been charged by the assessee on the loan to its subsidiary keeping in mind the arms length rate would be 14.12% and he accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra), that financial position and credit rating of the subsidiary would be broadly same as the holding company and LIBOR should be taken as bench-mark without going into aspects like financial health of subsidiary. In one of the cited cases, viz. Aurionpro Solution Ltd. vs Addl. CIT in ITA NO.7872/Mum/2011, Hon'ble tribunal has observed that appropriate rate would be LIBOR plus 2%. In the appellant's case, the TPO has not countered the decision in the case of Siva Industries and Holdings Ltd (supra) cited by the appellant before him, nor cited any authority in support of his view. The ratio given by the Hon'ble tribunal in the cases cited by the appellant is, that in the foreign currency lending, rate of interest to be adopted is to be based on LIBOR and at the most LIBOR plus 2%. As per documents given by the appellant, the average LlBOR rate for the previous year was 4.68%. Even if a mark up of 2% is given, the rate would be 6.68% whereas the appellant has charged 8% on the loan given to its AEs. It is also not in dispute that the cost of funds in the hands of the appellant is lower than 8% charged from the AE. Considering the facts and circumstances of the case and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lea of the Assessee was that the entire green leaf cess had to be allowed as deduction first and only on the loss or profit arrived at after such deduction Rule 8(1) of the Rules have to be applied and 40% of such sum has to be considered as income or loss from the business of manufacture and sale of tea. 12. On appeal by the Assessee, the CIT(A) deleted the disallowance made by the AO by following the order of the Hon'ble Calcutta High Court in the case of AFT Industries Ltd. vs CIT (270 ITR167) wherein it was held that Green Leaf Cess has to be allowed as deduction before applying Rule 8(1) of the rules and only thereafter 40% of such income has to be brought to tax. 13. Aggrieved by the order of the CIT(A), the revenue has raised Gr.No.2 before the Tribunal. The ld.counsel for the assessee relied on the orders of the ld. CIT(A). 14. After hearing the submissions of the learned counsel for the assessee and on careful perusal of the materials available on record, keeping in view of the fact that the issue is concluded by the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs AFT Industries Ltd. 270 ITR 167 (Cal) where the amount paid as cess w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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